How a Supreme Court ruling may stop you from reselling just about anything

Wiley v. Kirtsaeng may be the IP case of the decade—affecting all from eBay to libraries.

The other Kirtsaengs

Supap Kirtsaeng wasn't the only student bookseller that textbook publishers went after. In New York federal courts, the publishers' preferred venue, they've sued at least four student-resellers, and won every case.

While the publishing companies have made hay out of the $1.2 million in revenue, they have gone after students with far smaller businesses than Kirtsaeng, said John Mitchell, a Washington DC lawyer who defended two of those students.

Ganghua Liu (who goes by Linda) was a medical student in Texas when she started buying some of the textbooks she needed from China. The price difference was significant, said Mitchell. "It was something like a $250 textbook being sold for $50," he said. "In some cases the cover was in Chinese, but the content was all in English."

Liu started buying more textbooks and selling them online, but she never had a big operation.

"Her sales were peanuts compared to Kirtsaeng," said Mitchell, no more than a "few thousand dollars" annually. "They [the book publishers] were trying to get her to pay $15,000, and they might have taken less. They just wanted to shut down anyone who was selling, but she was a feisty individual."

The lawsuit was defended through the US Court of Appeals for the 2nd Circuit, where Liu ultimately lost. The facts in the case mirrored Kirtsaeng's, which had already been decided. Mitchell has appealed the Liu case up to the Supreme Court, but its results now seem likely to follow Kirtsaeng's.

Mitchell took on a second student bookseller client, Mohit Arora, who had resold books he bought in India. Like Liu, he appealed to the 2nd Circuit, but couldn't get around the precedent of Kirtsaeng.

Liu has been exhausted by the lawsuit against her, said Mitchell. "She has been struggling, due to illness in her family and severe financial hardship," said Mitchell. "Right now, she's neither studying nor practicing medicine. This really knocked the wind out of her sails."

Round One: How copyright got "hacked" in Costco v. Omega

The Supreme Court has considered the issue of "parallel importation" or "gray market" goods once before, in Costco v. Omega. However, the case resulted in an unusual 4-4 split and no published opinion. Justice Elena Kagan was unable to vote, because she had argued the case as Solicitor General, supporting copyright owner Omega.

Enlarge/ The infamous globe design on the reverse of the Seamaster watch.

Omega was upset that Costco imported a bunch of its Seamaster watches into the US, and was selling them for $1,299—a solid $700 less than Omega's suggested US retail price. Angered by importations that undercut its prices, Omega attempted a clever "hack" of copyright law that nearly worked. Unable to copyright wristwatches, Omega slapped a small globe design—less than 5 millimeters across—on the back of each watch. The sole purpose, Omega later admitted, was to make the watch a "copyrighted" good with the hope of restricting resale of its products.

Again, it almost worked. The 4-4 split at the high court meant Omega had won, since the 9th Circuit ruling supporting the watch company held up. Ultimately, though, Omega's case fell apart. The lower court found that sticking its copyrighted logo onto the back of an item that couldn't be copyrighted—a wristwatch—was actually an example of "copyright misuse."

The 4-4 result of Costco v. Omega doesn't bode well for the consumer advocates, online marketers, and resellers who are supporting Kirtsaeng. Four justices decided to support the copyright-owner even in a case where the copyright itself was dubious; the 'swing vote' is Justice Kagan, who is on record as supporting Omega when she worked for the government.

But this new case presents different facts, and different characters. Mitchell, the lawyer who represented Linda Liu, is optimistic the Kirtsaeng case will be seen differently from Costco, by both the court and the public.

"Nobody has to buy a $2,000 watch, or a $1,300 watch, so it didn't affect people in general," says Mitchell. "But anyone who wants a college degree is going to need to get their hands on textbooks. It affects millions of people, and I'm hopeful that now the Supreme Court is going to look at this as a case of importance to everyone in the US"

Emboldened support for "owners' rights"

"First sale" doesn't just protect the Supap Kirtsaengs and Linda Lius of the world. It exists to protect their customers, too—people who might never be "first owners" of books, games, or much of anything.

The companies and institutions affected by the resale-rights issues brought up in Kirtsaeng have certainly snapped to attention. They've formed a wide-ranging coalition called the "Owners' Rights Initiative," emphasizing to the public that the right to re-sell, lend out, and give away books, movies, and music is under threat. Members include Internet commerce companies, library associations, book-sellers, Goodwill Industries, and Redbox. The ORI website shouts in bold red: "You bought it, you own it—you have a RIGHT to resell it!"

In court briefs, content companies have characterized the stories being put forward by ORI as a mythical parade of horribles. If content-company lawyers were going to shutter libraries or march into garage sales, why weren't there any examples?

"Kirtsaeng and his amici contend that if the Court accepts this natural reading, economic ruin will follow for a litany of interested parties, from commercial retailers to charitable organizations to factory workers to flea-market sellers," write lawyers representing the MPAA and RIAA in their amicus brief [PDF]. "[T]here is no evidence this long-recognized principle has actually impaired any important secondary markets or led to imposition of liability on well meaning librarians, teachers, or garage-sale hosts. Indeed, almost every court to have considered the issue has come out the same way, and Congress has amended the Copyright Act on numerous occasions without disturbing that construction."

Copyright owners have little interest in policing garage sales, and legal exemptions already exist for libraries and small-scale importation (such as books in a tourist's carry-on). Copyright owners say they're concerned with "gray market" goods as big business, that will threaten their ability to succeed and profit at home.

"The genuine threat at issue is the prospect of systematic, unauthorized importation on a mass scale of copies of movies, sound recordings, or other protected works that could undercut the market for copies intended for sale in the United States or constrain copyright holders’ ability to control the timing and terms of entry into different markets."

An IP battle that stretches across industries and classes

The Kirtsaeng battle is a reflection of digital commerce today. Online marketplaces happily ignore borders, and have created a world in which almost any scrappy student could be another Supap Kirtsaeng, shattering long-standing pricing schemes by movie and book companies. That reality has made some very well-established US corporations very unhappy, and they know how to use courts to fight back.

So far, they're winning. Even their equally well-heeled corporate opponents are aware this fight may have to ultimately turn to Congress—no matter which way the Supreme Court decision turns out.

"I think the likelihood of a crystal clear decision by the court is not high, and we want to be prepared for that," said Overstock.com GC Mark Griffin. "And if they decide for Kirtsaeng, I wouldn't expect [the other side] to sit back and do nothing."

Copyright battles that pit technology companies against content owners are becoming a fixture of the Internet age. But those fights can seem abstract and distant to those without a vested interest. It's a rare IP lawsuit that so clearly reaches into every social class—but Kirtsaeng is one of those cases.

"First sale" doesn't just protect the Supap Kirtsaengs and Linda Lius of the world. It exists to protect their customers, too—people who might never be "first owners" of books, games, or much of anything.

Liu's lawyer John Mitchell reminded me of those stakes in an e-mail he sent after our interview.

"There are millions of people living in poverty or near poverty in this country," wrote Mitchell. "They scarcely buy new shoes or new clothes, instead shopping at Goodwill Industries or other establishments catering to their needs. They buy used cars, used phones, and used computers. For the person who always buys new, for whom price is not a big factor, the next 'point of distribution' is probably the trash. (And, yes, there is case law supporting the right to take copies intended for the trash, clean them up, and resell them.) 'First sale' protects those downstream individuals who will never buy new and who would otherwise be left out."